Paul L. Caron

Thursday, December 16, 2010

What Are Taxes For?

Wall Street Journal op-ed, What Are Taxes For?, by Daniel Henninger (Deputy Editor, Wall Street Journal's editorial page):

Should the primary purpose of taxation be to support the government or maximize economic growth?

Sarah, Mitt and several tea party groups say the tax compromise with Barack Obama is a bad idea, sells out the GOP's anti-spending promises and, worst of all, helps you-know-who's re-election chances. But Newt, Mike and Tim think it's a decent deal. Far be it from me to interrupt the GOP's holiday spirit. Let us stipulate, however, that the furtive, ragged tax bill being let out the back door of a lame duck Congress proves—officially and conclusively—that tax policy in the United States has hit the wall.

A compelling, even frightening article in Tuesday's Wall Street Journal about a tax system that is a morass of extenders, extrusions, loopholes, credits and bubble-gum fixes ended with the story of a grievously ill cancer patient balancing the benefits of taking an experimental drug against the estate-tax benefits to his family of an early death.

Whether the tax rates in place for most of the past 10 years are extended for two more years this week or next month is politically interesting but doesn't get to the more important question we should be asking Govs. Palin, Romney, Pawlenty and the rest: What exactly do you think taxes are for?

Do we pay taxes to support federal, state and local government, to reduce the deficit, or just maybe for something else? It's possible this question hasn't come up in a serious way since it was first asked by a peasant in Robin Hood's Sherwood Forest. ...

The more serious question that lies beneath the disaffection with government is this: What balance between the private and public economies will best allow the U.S. to remain the world's pre-eminent economic (and military) power for the next generation? That premise matters to how one answers the question about taxation's purpose. Barack Obama won't say it, but a school of thought linked to his presidency no longer sees a justification or need for U.S. primacy. That posture would indeed make it easier to maintain the "parity" between taxes and outlays that Mr. Summers seeks on behalf of the public sector. ...

There is an alternative. A radical (in the best sense) 21st-century tax debate—such as over Bowles-Simpson's three stripped-down marginal rates, topping at 23%, and lower taxes on business—would challenge the conventional 100-year-old idea in the U.S. that the first purpose of a tax regime is to ensure the functioning of the state. In the hypercompetitive world we will inhabit for at least a generation, might not it be time to rewrite the textbook? To ensure American well-being, the pre-eminent purpose of a modern tax system should be to achieve the highest possible level of growth in the private economy with a competent, efficient state in a supporting role.

| Permalink

TrackBack URL for this entry:

Listed below are links to weblogs that reference What Are Taxes For?:


Actually, there's a better question, and that is, what is government for? And the answer to that is that each layer of government, whether it's federal, state or local is there to provide services that can't be provided in any other way. Some examples: a national military makes more sense than 50-state militias; states differ in many respects from one to the other, and therefore each state should govern itself; ditto for towns and cities.

The purpose of taxes, therefore, is to fund the government at each of those levels so that they can implement the services which only they can provide. The problem is, and has been, that many of those in the government no longer represent the interests of those who voted them into office. And so the solution must be to vote them out, and keep voting them out until we get a Congress at the federal and state levels, and local politicians who understand and put into practice fiscal responsibility.

But, it's not all the politicians' fault. The voters can't make up their minds what they want either. In the recent mid-term election, something like 80% disapproved of Congress' performance; but, a similar number of incumbents were re-elected. If the citizens disapprove of Congress so much, why do they vote them back into office?

Maybe it's easier to complain than it is to change.

Posted by: Bruce Hoag, PhD, CPsychol | Jan 1, 2011 6:46:07 AM

If you don't tax enough to ensure the functioning of the state, the why spend money to fight wars for what is, in essence, a dying nonfunctional state. Especially on wars that don't have a win scenario.

One would think that the best outcome would be a tax rate that does both, maintains the functionality of the state AND maximize economic growth. I really have to doubt that a dysfunctional state will maximize anything but chaos.

Posted by: Bryan Price | Dec 17, 2010 8:10:17 AM

According to Obama, taxes are to "spread the wealth".
You may differ with that view but then Chris Matthews et al. would call you a racist.

Posted by: wikiwiki | Dec 16, 2010 9:21:30 PM